Ashbury Railway Carriage and Iron Co. Ltd. v. Riche (1875)

Ashbury railway carriage v riche|| Case Summary 

Introduction 

This case is related to the "Doctrine of Ultra Vires". In this case, the directors of the appellant company made an agreement with the plaintiff which was beyond the objectives, as mentioned in its MoA, of the appellant Company. Since the agreement was beyond its objectives, the appellant company repudiated the agreement later. Therefore the suit was brought by the plaintiff to recover the damages.

Facts 

• The directors of the appellant company (Ashbury Railway Carriage) had contracted to obtain a concession from Gillon and Poeters Baerston, who obtained this right from the Belgian Government, to make a railway. 
• For this purpose, the directors of the appellant company again entered into a contract with Riche, a contractor, the purpose of which was
1. to establish a société anonyme, 
2. and as the plaintiff went on with the work, the appellant company had to pay into the hands of société anonyme, 
• Earlier the shareholders permitted the accounts to pass.
• Later money difficulties arose in the appellant company, and the shareholders, becoming aware of the contract, appointed a committee of investigation, which reported that it was ultra vires altogether. 
• The company repudiated the agreement and compelled the directors of the company to take the burden of the contract.

Objects of the company as per the memorandum are :

1. To sell or lend railway carriages, wagons, and all kinds of railway plant, fitting machinery and railway objects
2. To carry on the business of mechanical engineers and general contractors. "General contractors" indicates making general contracts connected with the business of mechanical engineering.
3. To make, purchase, lease work, and sell mines, minerals, land, and buildings.
4. To purchase and sell timber, coal, metals, or other materials.

Respondent (Riche) Contention 

1. The company is liable to compensate him as they did not fulfill the contract.
2. Though the directors made the agreement, it was ratified by all the shareholders.
3. The term "general contractors" in the agreement is within the MoA of the appellant company.
4. The company can go beyond the memorandum after a special resolution.

Appellant Company's Contention 

1. The contract was ultra vires hence the Contract is "void ab initio".
2. There was no such special resolution to amend the MoA had ever been passed 

Issue  

1. Whether the company was competent to make an agreement beyond its MoA.
2. Whether a company could subsequently ratify a contract that had been made beyond its MoA. 

Ratio Decidendi

• Cairns looked into-
1. Joint Stock Companies Act, 1862 under which the company was established and held
• There is a very marked difference between the two documents, MoA and AoA, which form the title deeds of companies.
• The provision of limited liability does not only benefit the shareholders but also-
• Successive shareholders
• Outside public
• Successive creditors 
• The MoA is a defining area beyond which the company cannot go, but inside that area, they can make or amend governing regulations
• The intention of the Legislature was not implied but actually expressed, that the corporation should not enter, having regard to this memorandum of association, into a contract of this description.
2. Objectives/ MoA of the company and held
• The company was not competent to make a contract beyond its objectives, hence it was void.
• A contract of this kind is not within the MoA
• Carrying on the business of mechanical engineers and general contractors clearly doesn't include the making of these contracts.
3. The substance of the contract

• Where there could be no mandate there cannot be any ratification, and the assent of all the shareholders can make no difference
• Lord Selborne- The contract was not to execute any works directly or indirectly but to find capital for a foreign railway company in exchange for shares and bonds of that company. Such a contract, in my opinion, was not authorized by the memorandum of association of the Ashbury Company
• Contracts for objects and purposes foreign to, or inconsistent with the memorandum of association are ultra vires of the corporation itself.

Judgment 

• It is not illegal but the company has no competency to make such a contract as per the memorandum that's why it is void from its beginning.
• Justice Bramwell B stated A contract of this kind to finance the construction of a railway line was not within the "Memorandum of Association". 
• Justice Blackburn stated a wholly void Contract, cannot be ratified, therefore this contract could not be ratified by shareholders.
• Appeal Allowed. And the company is not liable to compensate the respondent.